Klondex picks up idled Manitoba mine for $32 million

Klondex Mines (TSX:KDX) has added to its portfolio of properties by acquiring the idled Rice Lake Mine in Manitoba, Canada.

The Nevada-focused gold and silver producer said Friday it would buy the mine and mill for US$20 million in cash, and provide a $12 million interest-bearing note.

Rice Lake is the former core asset of San Gold Corp., but it was sold in June to a Manitoba numbered company as part of a court-supervised bankruptcy, according to CTV News. The mine has operated intermittently since 1931 but was put on care and maintenance in May.

As part of the deal, Klondex will also get a 50 percent interest in the Tully gold project in Ontario and a 32 percent stake in SGX Resources (TSXV:SGR).

In a press release, CEO Paul Andre Huet said the company will be able to deploy equipment used at its flagship Midas operation in Nevada, and use its expertise in underground mining, to the benefit of the Rice Lake Mine operation. He said the acquisition will not take away from the firm's primary goal of filling the Midas mill from its Nevada operations.

"Fire Creek and Midas continue to be our flagship assets and we will not lose our focus on these core properties," he stated.

Klondex says it will implement the same grade and dilution control methods it has applied to the narrow-veined Fire Creek and Midas operations. "By applying a more selective mining approach to the Rice Lake operation, Klondex will reduce tonnage, minimize dilution and focus on producing higher-margin ounces."

The mine consists of three underground deposits with a 2,500 ton per day mill. Klondex says over 1.5 million ounces have been produced since 1931, including between 2007 and 2015 when about 390,000 ounces were mined. Rice Lake has measured and indicated resources of 634,000 ounces graded at 6.8 grams per tonne.